JIN-147 -- NetSlaves and the Failure of Tech Journalism

J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news

Issue No. 147
Wednesday, September 5, 2001


+++ Viewpoint: NetSlaves and the Failure of Tech Journalism
+++ Noteworthy news
- Japan's Got 3G
- Not Everyone's Been Laid Off
- Reemploy the Unemployable?
- Local Area Networked Stations
- Surfing to the Mall
+++ Events


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NetSlaves and the Failure of Tech Journalism

"Journalists, as a rule, are not to be trusted," writes Steve
Gilliard in a lengthy, well-written posting on the NetSlaves
community site (see link below). Gilliard's posting details the
failures of American dot-com journalists -- particularly those at
mags like Fast Company, Red Herring, and the now-defunct Industry
Standard -- who, like the dot-coms they covered, have come to grief
with the collapse of the Net bubble.

Gilliard argues that the grief is well-deserved, and that tech
journalists served as "lack[ies] for this year's paper billionaire."

As journalists ourselves, we have to admit that Gilliard appears to
make some excellent points -- points that made us sit back and stare
out the window for a while while we pondered the state of tech
journalism in Japan. In case you haven't read his post, here is one
highly salient extract:

Where was the serious reporting on Webvan, a company
so doomed that any grocery store manager could have
pointed out the flaws over a cup of coffee? Time and
again, basic reporting was ignored for the hype. And
who did this screw? The workers and the investors.
Any glance at a company's public documents would have
demonstrated options were a fraud.

Most of the people covering the dotcom boom failed in
the basic duties of journalism by not reporting the truths
about these companies. They refused to investigate, to ask
hard questions and relied on PR and marketing to shape
their coverage. Why in God's name should the public have
trusted these publications to live up to the public trust
that journalists should be held to.

But we think Gilliard's points, however applicable to the US
situation, don't hold water in Japan.

Here, few (least of all, J@pan Inc, we think) have made the mistake
of breathlessly pronouncing the end of "existing business as we know
it" due to the Web revolution. Quite the contrary, our tech coverage,
and the coverage of others that we pay attention to, has made it a
point to present all the doubts inherent in taking any kind of
traditional business (and all business in Japan is traditional
business) and moving it online. And for most of our stories, there
were plenty of doubts.

Consider our story on foreign-capital startup i-grocer.com (May 2000
-- link below). This one may be a good example, because most (all?)
online grocery sites seem to have failed, indicating that the
business of selling groceries may fundamentally not be applicable
to the Web (the failure of Webvan in July may have been one of the
most expensive dot-bombs in history). Of 18 paragraphs in the JI
story on i-grocer, seven raised doubts, questions, or difficulties
with i-grocer.com's intended business.

Even the story's title ("Foodhearty?") made it clear that we
fundamentally doubted i-grocer's plans. Did i-grocer's investors read
the story? We don't know. Did our story stop the venture from going
ahead, and the money from being lost? No -- nor was it intended to.
The story was intended to inform the reader of the reality of
i-grocer's situation, a reality that proved to be overwhelming
despite CEO Duane Sandberg's best efforts, and the story did
precisely that.

Meanwhile, i-grocer is gone, and we sincerely wish Mr. Sandberg,
wherever he is, the best of luck. Sandberg is one of this life's
truly decent fellows, and we applaud his drive, determination, and
sheer bloody-mindedness.

In fact, it's precisely this spirit of entrepreneurism that JI is
unabashedly guilty of overhyping. Sure, we gave the Japan women-
centric Web sites lots of coverage (most are struggling or gone),
we pushed Bit Valley (it's dead), and we covered companies that
have, for various reasons, disappeared (EOsites, TargetOne,

But we have always made it clear that there was and will be no
dot-com or Web revolution here; Japan is just to slow to adopt
developments, new processes, and change (Thank God!). Businesses
that succeed on the Net here will do so by exploiting the Web,
mail, mobile, fixed wireless, and other channels to access
customers and provide convenience, clarity, and benefit to

What will occur here, generally, is a methodical adaptation of the
best features of the Internet and tech-based processes to update and
improve existing business practices. It won't be flashy, it won't be
smooth, it won't be efficient, and it will take time. And in the end,
it will be done better than almost anywhere else.

The role of JI -- and of tech journalism -- was, and remains, to
point out where the difficulties of tech-based business in Japan lie,
and to remain loyal to our audience.

Should we ever slip up on that, we'll rely on you, Gentle Readers, to
take us to task.

-- Daniel Scuka

"The Failure of Tech Journalism"
by Steve Gilliard

J@pan Inc story on i-grocer.com "Foodhearty?"


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** Japan's Got 3G

Extract: Despite the continuing gloom in telecoms, Japan's largest
mobile-telephone operator, NTT DoCoMo, announced on September 3 that
it plans to launch the world's first commercial third-generation (3G)
wireless service on October 1. Even though Japanese consumers often
flock to snap up high-tech products, DoCoMo's decision is risky.
Apart from hoping that most of the bugs that have plagued the new
technology have now been sorted out, DoCoMo is also gambling that
enough customers will be prepared to sign up to what will be a
relatively expensive service, at a time when the Japanese economy
teeters on the brink of recession. The outcome will be closely
watched all over the world, especially by Europe's telecoms firms,
which have splashed out billions of dollars for 3G licenses.

Commentary: It's difficult to understate just how much of a risk 3G
really is. DoCoMo, alone among global telcos, is pushing ahead with
the launch of a network that is replete with unknowns, including how
to guarantee quality of service, how to provide high-speed data
services that people will want to use and pay for, and how to ensure
the functionality of the handsets. What is known about the new 3G
system, based on new, untried W-CDMA technology, is that the network
will be hugely expensive, it will take most of a year to establish
coverage in Japan's major markets, and there are still severe
limitations on the types of services (such as streaming video and
audio) that can be provided.

For now, handsets are estimated to cost upwards of JPY50,000 (two to
three times the price of current i-mode Java models), the service
fees will be expensive, and the network will only operate in a 30km
radius of central Tokyo. We pity the poor marketing managers who have
to make it all work. One senior engineer working on 3G systems here
told us last week, "I don't think anyone realizes how difficult this
really is. I think DoCoMo is being very courageous." We agree.

Source: "Japan rolls out 3G phones," Sep. 3
The Economist

Read DoCoMo's press release:

** Not Everyone's Been Laid Off

Extract: By the end of 2003, IBM Japan will about double the number
of employees in its group software-services division, raising the
number from the current 12,000 to 22,000, IBM Japan president Takuma
Otoshi announced at a press conference in Tokyo on Thursday. "The
information technology sector is said to be in a recession, but the
situation is not affecting IBM," said Otoshi. The company is shifting
its emphasis from its hardware division to more profitable
software-services division, which accounts for around 60 percent of
its overall JPY1.6 trillion sales.

Commentary: A tiny bit of payback and good news after the last two
weeks, which saw Toshiba, Fujitsu, NEC, Hitachi, and Matsushita all
announce layoffs in the thousands. We guess this is one more piece of
evidence indicating that the manufacturing economy is undergoing at
least the start of a transformation into a services economy, as
America's did in the 90s. With more and more Japanese manufacturers
building their plants offshore, perhaps the Philippines, Malaysia,
India, and Indonesia may become the next Tigers, fueled by Japan's

And if more proof of Japan's evolution towards services (and retail)
is needed, consider a recent listing of companies that have **hired**
staff in the past year (all have hired at least 3,500 new staff):
Yamato Unyu, Bank of Tokyo-Mitsubishi, Orient Corporation, Jusco,
Yamazaki Bakery, Sakura Bank, Seksui House, Sharp, Ito Yokado, and
Canon Sales.

Source: "IBM Japan to Add 10,000 Employees to Software Services," Aug. 31
Nikkei on Yahoo

** Reemploy the Unemployable?

Extract: The Confederation of Japan Automobile Workers' Unions
(Jidosha Soren) estimates up to 143,000 people may lose their jobs in
the automobile industry by the end of 2005. The reduction will be
inevitable, especially in the automobile parts sector, because of
intensified international competition, major cuts in the industry's
workforce due to realignment of domestic carmakers, as well as the
transfer of manufacturing operations to foreign countries. According
to the estimate, there were 791,600 employees at automobile-related
companies last year.

Commentary: Hmmm. Even if there's an encouraging shift towards
services and retail, this item pours a little cold reality on the
situation. And if you think 143,000 workers is a lot, keep in mind
that last week, the senior vice minister of economy, trade, and
industry said that as many as **600,000** workers could loose their
jobs in the construction industry in the next 3 years as the
government implements structural reform.

While we have a lot of confidence that the highly skilled workforce
to be let go from the car companies could be retrained and reemployed
in the emerging services, retail, software, or other sectors, it's a
whole different kettle of Fugu with these construction workers.

Based on the workers at local building sites that this writer passes
each morning coming into the office, many appear to be middle-aged or
older and would seem unlikely candidates for retraining and
reemployment as, say, IBM e-services sales and marketing people, or
Linux gurus. Also, many of the 600,000 construction workers live far
from urban centers. For Japan, where social stability is an
over-riding goal, these layoffs are a huge problem.

Source: "143,000 Jobs May Go by '05, Auto Unions Say," Sep. 4
Daily Yomiuri

Also: "600,000 Construct. Workers to Lose Jobs in 3 Years," Aug. 31


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** Local Area Networked Stations

Extract: Japan Telecom and East Japan Railway will launch a joint
experiment providing Internet service over a wireless LAN at JR Tokyo
Station. In the experiment, 300 monitors, who will be recruited for
the experiment, will bring their computers in and will be able to
enjoy 1.5Mbps access service in and around Dorin-no Hiroba Square and
the Media Court, two popular meeting places inside the station. If
results of the broadband service are positive, the two companies will
set up wireless LAN access facilities in other areas, such as inside
train cars and other stations along Tokyo's Yamanote Line.

Commentary: Security considerations aside, giving away free public
access via 802.11b-based LANs has the potential to force a tectonic
shift in Japan's Net at least as significant as that due to wireless
in 1999. Prior to i-mode and the other wireless webs, there was only
a single modality of access, combining expensive home PC, high-priced
dial-up ISP, and high-priced per-minute telco surfing charges. In
early 2000, getting online via wireline dialup was prohibitively
expensive -- costing $67.12 per 20 hours for combined ISP and telco
fees, compared to India, at $42.30, and the US at $30.05.

In February 1999, i-mode started (followed shortly by competing
emulators J-Sky and EZweb), and in the span of 12 months, some 5
million mobile surfers were on the Net for JPY0.3 per packet and no
time fees, using a (relatively cheap) handset, and Japan's Web hasn't
looked back. As surfers became used to the great services that the
mobile Web could provide cheaply, they wanted the same thing at home.
Enter the flat-rate, high-speed DSL industry that started late last
year; now, home surfers are connecting all they want at 1.5Mbps or
more for significantly reduced rates.

With the start of free high-speed LANs, Japanese surfers now have
the best of both worlds: all-you-can-eat, cheap (free!!) high-speed
service that can be accessed while mobile. NTT DoCoMo and the
traditional wireline ISPs (Nifty, Biglobe, So-Net, etc.) must be
having a bird.

Source: "LAN trial set for Tokyo Station," Sep. 5
The Japan Times

** Surfing to the Mall

Extract: Rakuten's mid-term results for the first half of 2001
(January-June) indicated that the number of Rakuten Ichiba online
shopping mall stores decreased for the first time since the company
started its services. On the other hand, Infoseek, a major portal
site purchased by Rakuten for about JPY9 billion in December 2000,
moved into the black in July on a monthly revenue basis. At the end
of 2Q2001, Rakuten Ichiba had 5,106 stores under its wings, 86 less
than in the first quarter. By including "Rakuten Business," a new B2B
business and "Rakuten Travel," dealing in hotel reservations, its
total number of stores reached 7,079.

Commentary: We've kept our eye on Rakuten since J@pan Inc's inaugural
issue in November 1999, and with good reason. The online mall
(portal?) model of consumer-targeted shopping and e-commerce seems
to be a unique facet of Japan's Web. This report also states that
Rakuten's non-consolidated sales in the first half of the year were
about JPY2,373 million, a 110 percent increase year-on-year; this
generated a current profit up 224 percent from last year's JPY503
million. Wow! But on a quarterly basis, consolidated sales in 2Q were
JPY1,570 million, about 3 percent up from the previous quarter. Why
is this? Rakuten's business model depends at least in part on rental
fees collected from online mall merchants. Even if they don't do so
well, Rakuten still gets paid. For the past couple of years, there's
been enough Internet buzz to keep new merchants signing up, even if
existing ones were doing poorly. That, obviously, is at an end. How
can Rakuten's Mikitani-san reposition the model for sustainable
profits? Maybe go mobile?

Source: "Rakuten's Online Mall Business Reaches New Stage," Sep. 4
Nikkei AsiaBizTech

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4,320 as of Sep. 5, 2001

Written by Daniel Scuka (daniel@japaninc.net)

Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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